ICS Commentary - U.S. Employment Cost Index, Q4 2011

According to the Employment Cost Index released Tuesday January 31st, by the U.S. Bureau of Labor Statistics, total compensation for state and local government employees rose only 1.3 percent over the previous 12 months. This is the lowest year-on-year increase for public sector compensation since the series began in June of 1982.

“There is no doubt that the compensation of state and local employees is under pressure,” says Linda Barrington, Managing Director of the Institute for Compensation Studies. “With inflation at 3 percent, the 2.2 percent increase in compensation costs in the private sector isn’t keeping pace. But the 1.3 percent increase in state and local governments is losing pace even faster.”

Annual inflation (CPI-U) currently stands at 3.0 percent.

For employees in the private sector, benefits alone drove the overall acceleration in the 12-month ECI, up from 2.1 percent last quarter. Wage and salary cost increases over the past 12 months continue in what Barrington describes as an “unprecedented low and flat pattern.” The percent change of private sector employers’ spending on private sector employee benefits rebounded to 3.6 percent, but that for wages and salaries dropped slightly to 1.6 percent.

Employers need to recognize that a dissonance may be created for employees when “benefit costs rise for employers, but the employees don’t see the additional dollars flowing directly to them,” cautions Barrington. “Employers may be wise to consider some additional employee communications to ensure that employees are understanding the full value of employer-provided benefits.”